Initially, the parallels between the fiber buildout around the turn of the twenty first century and the satellite industry today are compelling.
In the late 1990s, the telecom industry increasingly poured billions of dollars into fiber. As these investments peaked, new technologies emerged to increase fiber optic capacity, including wavelength division multiplexing. This resulted in such a massive increase in efficiency that much of the fiber laid nearly twenty years ago is now dark. Rates plummeted and companies that were heavily invested in fiber were forced to restructure. Even today, fiber backbone providers’ competitiveness often relies on price paid for the network in restructuring rather than its initial cost and capacity.
Historically, satellites typically had 1-3 Gbps of throughput, although Hughes and WildBlue had launched satellites in the mid 2000s with roughly 10 Gbps throughput. In 2011, ViaSat launched ViaSat I with approximately 130 Gbps of throughput, followed by Hughes Network Services’ Jupiter I with similar capacity. Each of these new satellites individually has approximately as much capacity as previously existed over North America. In early 2017, ViaSat expects to launch ViaSat II with approximately 270 Gbps of capacity over North America and has announced plans to launch three satellites with 1 terabit of throughput each! These new 1 terabit satellites will each have approximately as much capacity as the entire satellite industry today. Meanwhile, several other high throughput satellites (“HTS”) are being launched by Eutelsat, Hughes Network Systems, Inmarsat, Intelsat, O3B and others. While other don’t have the capacity of ViaSat’s planned satellite, the cumulative impact of the new satellites guarantees a several-fold increase in global satellite capacity.
The parallels with fiber end there. Relative to fiber, the satellite story is worse for incumbents, and better for new entrants. Existing fiber network deployments can often be easily upgraded to benefit from new technology to increase capacity. Such is not the case with satellites; compression and antenna technology can often incrementally increase the capacity of an existing satellite, yet throughput cannot increase anywhere near the order of magnitude of improvement in throughput featured on new satellites. Simply put, for most internet-based and network applications, new HTS satellites beat old traditional satellites. The also create excess capacity on legacy satellite and, to an extent, depresses pricing for broadcasting applications.
The mismatch between new and legacy technology can put incumbents at a disadvantage and encourages increased investment even when there is overcapacity. Excess capacity is creating price pressure, so existing operators tend to view adding new HTS capacity and thus lowering their unit cost as the only way to compete. The fallacy is that the industry as a whole is responding to overcapacity by adding more capacity! Individual rationality is leading to collective irrationality. As a result, this cycle is on track to repeat itself with every new generation of HTS technology. It’s not clear how this will end as the dramatic increase in satellite throughput over the past ten years makes it seem unlikely that satellite technology improvements will stabilize with the introduction of one terabit satellites. To date, incumbent satellite operators have been partially buffered from the impact of this new capacity — much of it has gone into new consumer offerings that fill a gap in rural and semi-rural areas where many telcos are disinvesting in DSL. However, the ~$50/month consumer satellite broadband market is limited, especially outside of North America and Europe. As a result, the weight of this new capacity is likely to drive-down satellite capacity pricing at an increasing rate over the next several years.